In my February 2023 post, I comment on the elements an insurer must prove in Minnesota to prove a claim for fraud.  A recent Court of Appeals case wherein I represented the insured tenant provides an excellent example of the evidentiary burden an insurance company carries when it claims the insured committed fraud.  The case is Galaxy Wireless v. Western National Insurance, and it is a “must read” for Minnesota property owner advocates.

In this case, the insurer alleged the property owner made material misrepresentations with its tenant improvement claim.  The insured tenant testified he did $445,000 in improvements, but the invoices and estimates were lost in the fire.  The insurer claimed many alleged tenant improvements were truly installed by the landlord, thus the claim for those improvements was fraudulent.  The district court held the insurer had to prove the three elements I describe in my prior post, which are 1) a misrepresentation, 2) intent, and 3) the misrepresentations were material.

The insurer argued that a gap between the insured’s estimate of its tenant improvements, and the jury’s calculation of its value, demonstrates fraud.  The insured testified he estimated the cost of tenant improvements was $445,000, some of which were photographed and submitted as evidence.  A jury found the improvements cost $100,000.  The courts allowed the jury to decide the value of the repairs, and the gap between the jury finding and the claimed amount did not result in an automatic finding of fraud.  A jury could find such a gap to be evidence of willful intent to deceive, but post-trial the law will not assume it.  Juries are to be asked separate questions on intent and materiality, and when competing evidence is offered, the courts will defer to the jury’s judgment.

The jury found that whatever misrepresentations the insured made were not intentional.  As a result, the entire fraud claim failed.  The jury found no intent, and the Court of Appeals found no reason to overturn that finding.  That is due, in large part, to the courts’ deference to juries.  Juries find the facts, and any effort to overcome the jury’s decision is extremely difficult.

Both the district court and Court of Appeals reiterated that intent under Minnesota law is to act willfully or knowingly to deceive the insurance company. I think the point of the deception must be to get the insurer to overpay.  The Court of Appeals endorsed the jury instructions which state that honest mistakes do not void a policy.  That is an extremely important principle.  In the real world, mistakes will happen when property and records are consumed by fire.  You can’t measure and test what no longer exists, and memories of what lost records describe will fade.  It is a very good thing for Minnesota law to recognize that honest mistakes are not fraud.

Another element the jury was to consider, had it found deceptive intent, was whether a misrepresentation was material. Material means important or substantial, and to the point it impacts the insurer’s decision-making process as I previously wrote. In this case, the jury did not reach the materiality question because it found no intent.   Yet it is important to note this third charge to the jury because it shows the insurer must prove three separate elements.

The Galaxy Wireless case also stands for the proposition that those who accuse an insured of fraudulent intent are themselves subject to cross-examination regarding their motive.  The credibility of a witness can be attacked by evidence of bias of prejudice.  This includes witnesses accusing an insured of fraud.  At trial, the bias or prejudice of the accuser is fair game.  In this sense, intent goes both ways and is not just an accusation an insured must defend.

The main take-away is that in Minnesota an insurer has the burden to prove three separate elements for a fraud claim.  That is good news for insureds.  Many of my clients feel they must prove their innocence, but in fact it is the insurance company that must prove their liability. There is now more case law to establish this is not an easy burden.  A jury is the ultimate decision maker on intent, not an insurance company adjuster or lawyer.

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